Measuring the probability of financial covenant violation in private debt contracts

Peter R. Demerjian and Edward L. Owens

Journal of Accounting and Economics, 2016, vol. 61, issue 2, 433-447

Abstract: We measure the probability that a borrower will violate financial covenants in private debt contracts. We analyze hand-coded data and specify standard covenant definitions using Compustat data that minimize measurement error for all individual Dealscan covenants. We use these definitions to create a measure of aggregate probability of violation, which can be used across all covenants in a loan or among covenant subsets of interest. We provide evidence that our aggregate probability measure is superior to alternatives used in prior literature.

Keywords: Debt covenants; Dealscan; Covenant violation (search for similar items in EconPapers)
JEL-codes: G30 M40 M41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (75)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:61:y:2016:i:2:p:433-447

DOI: 10.1016/j.jacceco.2015.11.001

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